What is a payment gateway? How it works, types and fees

Published Monday 20 April 2026

Table of contents

• What is a payment gateway?
• How payment gateways work
• Payment gateway vs payment processor
• How much a payment gateway costs
• Examples of payment gateways
• How to choose the right payment gateway for your business
• FAQs on payment gateways

Key takeaways

• Evaluate payment gateway costs by looking beyond transaction fees (typically 1.2% to 2.9% plus a fixed amount per transaction) to include fraud protection fees, token storage fees, monthly account fees, setup fees, and authentication fees.
• Choose your gateway type based on your technical skills and business needs: hosted gateways offer simple setup, self-hosted gateways create a smoother customer experience, and API-hosted gateways give you full control over customisation.
• Prioritise key features such as Level 1 PCI DSS compliance for security, multi-currency support for international customers, and recurring payment handling if you run a subscription-based business.
• Use multiple payment providers at the same time to give customers more ways to pay, which can increase completed purchases and boost sales through familiar options like PayPal alongside standard card payments.

Key takeaways

• Evaluate payment gateway costs by considering all six fee types: transaction fees (typically 1.2% to 2.9% plus fixed amounts), fraud protection fees, token storage fees, monthly account fees, setup fees, and authentication fees.

• Choose the appropriate gateway type based on your technical capabilities and business needs: hosted gateways for simple setup, self-hosted for seamless customer experience, or API-hosted for complete customisation control.

• Prioritise essential features like multi-currency support for international customers, Level 1 PCI DSS compliance for security, subscription payment handling for recurring revenue models, and mobile payment support to maximise conversion rates.

• Use multiple payment providers simultaneously to offer customers more payment options, increase completion rates, and boost overall sales through familiar payment methods like PayPal alongside traditional card payments.

What is a payment gateway?

A payment gateway is secure technology that processes card payments between customers and businesses. It encrypts payment data, authorises transactions, and allows you to accept debit and credit card payments online and in physical stores.

Choosing the right gateway ensures safe transactions for your customers. This is a vital priority when over 70% of executives anticipate a rise in financial crime risk in 2025. It also streamlines how you get paid.

Find more detail in this guide on five reasons to use online payment gateways.

How payment gateways work

Payment gateways work by securely transmitting customer card details between your website, the banks, and the card networks to authorise each transaction in seconds. Here's what happens when a customer clicks "pay":

1. At checkout, the customer enters their credit or debit card information.
2. Either the payment gateway runs the payment page, or your site encrypts the input fields and sends the data securely to the gateway.
3. The payment gateway encrypts the card details, conducts fraud checks, and then transmits both the cardholder's information and transaction details to the merchant's acquiring bank.
4. The acquiring bank sends this information to the relevant card scheme, for example, Visa or Mastercard, which then sends it to the issuing bank. The issuing bank runs another fraud check and either approves or declines the payment.
5. The card network communicates the authorisation decision back to the payment gateway, which informs both the customer and the merchant whether the payment has been accepted or declined.
6. Depending on the issuing bank's decision, the payment page will either confirm the payment or prompt the customer to try another payment method if the bank declined the transaction. Under strong customer authentication (SCA) rules, the session may also time out, as the maximum time without activity from a customer after authentication is five minutes.

Payment gateway vs payment processor

A payment gateway securely collects and sends your customer's payment information, while a payment processor communicates with the banks to approve the transaction and move the money. Think of the gateway as the digital version of a card terminal, and the processor as the system that moves the money.

Some services handle both roles:

• Stripe: combines gateway and processor in one platform
• PayPal: provides gateway and processor functionality together

For small businesses, choosing an all-in-one provider simplifies setup and support.

How much a payment gateway costs

Payment gateway costs typically range from 1.2% to 2.9% per transaction, plus fixed fees. Understanding the six main fee types helps you compare providers accurately:

• Transaction fees: charges applied per payment processed
• Fraud protection fees: charges for security screening, often per transaction
• Token storage fees: charges for saving card details for repeat customers
• Monthly account fees: charges for regular service access
• Setup fees: charges for one-time activation
• Authentication fees: charges for secure customer verification using strong customer authentication (SCA), where rules have applied since 2019 to ensure banks check payment permissions, and 3D Secure 2 (3DS2)

How much do payment gateways charge per transaction?

Transaction fees typically range from 1.2% to 2.9% plus 20p to 30p per transaction. For example, Stripe charges 1.2% to 2.9% + 20p per transaction with no monthly fees.

Some providers combine percentage rates with fixed monthly charges, so compare the total cost based on your expected transaction volume.

Why do payment gateways charge fees?

Payment gateways charge fees to fund the fraud protection and security infrastructure that keeps your transactions safe. These fees cover:

• Fraud screening: automated checks that block suspicious transactions, an essential defence now that 61% of executives view the increased use of AI by criminals as a leading risk catalyst
• Encryption: secure handling of sensitive card data
• Chargeback protection: protects against disputed payments

This protection matters because customers can report an unauthorised payment up to 13 months after the transaction.

Examples of payment gateways

Popular payment gateway options for UK businesses include:

• Square: offers simple setup and works both online and offline
• Stripe: provides high customisation and developer-friendly tools
• Braintree: accepts 130+ currencies for international sales
• GoCardless: specialises in direct debit payments
• PayPal: builds customer trust through wide recognition
• Worldpay: delivers comprehensive features from an established provider
• Adyen: serves larger businesses with a global platform
• Amazon Pay: uses existing Amazon customer accounts
• Shopify Payments: integrates directly with Shopify stores
• Opayo: focuses on UK businesses with local support

To choose the best payment gateways, consider which ones provide the functionality you need at the right cost.

For instance, Stripe is one of the most popular payment gateways in the UK and you can customise it to fit your website. If you want to get set up quickly, Square makes it easy to take payments both online and offline. Braintree accepts over 130 currencies, so it can work well if you want more international customers.

Well-known brands can help customers feel secure when they pay (for example, Amazon Pay or Shopify). You can also use multiple payment providers if you want to offer more options.

How to choose the right payment gateway for your business

When deciding on a payment gateway, consider your business needs. The right choice depends on your technical capabilities, transaction volume, and customer requirements.

Types of payment gateways

You can choose from three main types of payment gateways. Most small businesses start with hosted gateways for simplicity, then upgrade as they grow.

Hosted gateways: customers complete payments on the provider's secure page

• Benefits: requires minimal technical setup and provides high security
• Drawbacks: redirects customers away from your site, which may reduce completion rates

Self-hosted gateways: payment forms appear directly on your website

• Benefits: creates a seamless customer experience and improves completion rates
• Drawbacks: requires more technical setup and offers limited customisation control

API-hosted gateways: give you complete payment control on your servers

• Benefits: allows full customisation and delivers optimal user experience
• Drawbacks: costs more, requires significant technical expertise, and suits larger businesses

Key features to consider

When choosing a payment gateway, evaluate costs and these features:

• Multi-currency support: accepts payments in different currencies from international customers. Check for foreign currency transaction fees before you commit.
• Security and fraud checks: protects sensitive payment data with Level 1 PCI DSS compliance, the same standard used by platforms certified as a level 1 service provider like GOV.UK Pay. Some gateways add fraud detection and screening tools for extra protection.
• Recurring payment handling: manages subscription billing automatically with gateways like GoCardless. Look for stored card details, scheduled charges, and retry options for failed payments.
• Multi-language support: helps international customers complete purchases confidently. Choose a gateway that supports multiple languages.

FAQs on payment gateways

Here are answers to common questions about payment gateways and how to choose the right one for your business.

What's the difference between a payment gateway and a payment processor?

A payment gateway securely collects and transmits your customer's payment information, while a payment processor handles the communication with banks to approve transactions and move money. Some services like Stripe and PayPal combine both functions in one platform.

How much does a payment gateway cost?

Payment gateway costs typically range from 1.2% to 2.9% per transaction plus 20p to 30p. Total costs depend on your transaction volume and which features you need, such as fraud protection, multi-currency support, or recurring payments.

Which payment gateway is best for small businesses?

The best payment gateway depends on your specific needs. Square works well for businesses that need both online and offline payments. Stripe offers extensive customisation options. GoCardless specialises in direct debit payments for recurring revenue. Consider your technical capabilities, transaction volume, and customer preferences when choosing.

Do I need PCI DSS compliance?

Yes, if you handle card payments, you need to comply with PCI DSS standards. Choosing a payment gateway with Level 1 PCI DSS compliance helps protect your customers' payment data and reduces your compliance burden.